- Gold prices tread water after starting the key week on a soft base.
- A European energy crisis, US-China spats weigh on sentiment while curbing US holiday market movements.
- Recession fears, hawkish Fed bets underpin DXY strength.
- US ISM Services PMI for August, US traders expected to react to recent developments.
After a soft start to the week, gold (XAU/USD) remained around $1,710 as traders awaited key US data, as well as a return to full markets on Tuesday. Losses in the yellow metal could be linked to growing recession fears in Europe and rising tensions between the US and China, not to forget fears of aggressive rate hikes by the US Federal Reserve (Fed).
The old continent’s situation worsened when Russia cut off energy supplies to Europe after Moscow joined other Group of Seven (G7) leaders in announcing a cap on oil prices. Adding to Europe’s energy crisis are promises of a US-Iran oil deal and production cuts by allies including the Organization of the Petroleum Exporting Countries and Russia, collectively known as OPEC+.
Elsewhere, US-China spats over a trade deal and Taiwan escalated Monday, with the Biden administration now announcing its intention to continue Trump-era tariffs. These tariffs were reviewed for removal and indicated a possible improvement in previous relations.
Moreover, US readiness to sell arms to Taiwan and Taipei’s no-visa access to residents of some of its friendly countries, including the US, have taunted Beijing to have harsh words for US-Taiwan relations and escalate the row.
Alternatively, Friday’s mixed US jobs report and the People’s Bank of China (PBOC) signaled a cut in the foreign exchange reserve requirement ratio (RRR) by 200 basis points (bps) from 8% to 6% from September 15, per Reuters Ltd. Bear move.
Amid these plays, European equities were lower and bond yields firmed while the US dollar index (DXY) refreshed its 20-year highs.
Looking forward, the overall markets’ reactions to recent recession fears and soft US data on Friday will be critical to watch for XAU/USD traders. Also important is the ISM services PMI for August, 55.5 and 56.7 expected earlier. Given recession worries and rising geopolitical tensions, any uptick in data could renew hawkish Fed bets and favor gold buyers.
Also Read: ISM Services PMI Preview: High Bar to Help Dollar Bears Pass and Acquire
Gold prices remain inside a two-day-old symmetrical triangle as traders await the return of full markets.
In addition to the triangle area between $1,709 and $1,715, the 50-HMA and 200-HMA are also blocking the short-term XAU/USD move around $1,707 and $1,727.
However, it is worth noting that bearish MACD signals and the commodity’s retracement from the 38.2% Fibonacci retracement of the August 25 to September 01 decline around $1,718 will keep sellers optimistic.
A downside break of $1,707 support, which includes the 50-HMA, will not hesitate to pull the reference towards a monthly low near $1,688 before highlighting the yearly bottom marked in July near $1,680.
Meanwhile, a recovery remains elusive until a break above the 200-HMA hurdle near $1,727, a break of which could propel XAU/USD buyers towards the late-August swing high of $1,745.
Overall, the golden bears are in control but room is limited on the south side.
Gold: Hourly chart
Outlook: Further weakness is expected